California

Gateway to Carry More Electronics

The computer maker will bolster inventory with cameras, TVs and other non-PC products as it seeks to boost sales.

In an effort to dig itself out of a persistent slump in personal computer sales, Gateway Inc. on Monday announced a plan to stock its 274 retail stores heavily with digital cameras, printers and other consumer electronics -- including its own brand of wide-screen, flat-panel TV sets.

The Poway, Calif.-based computer maker will add about 150 non-PC products this week as part of its strategy to broaden offerings. Gateway hopes to attract customers who want more hands-on help in using computer accessories and other electronics than other retailers provide.

Gateway spokesman Brad Williams said that with the expansion, the company will have $15 million in non-PC inventory and $20 million worth of PC products by the end of the year, for a total of $35 million. The company three months ago started adding gradually to its inventory of about $10 million, to about $20 million now.

Charles Wolf, an analyst with Needham & Co., said the latest step in Gateway's strategy might have risks but makes sense. The company -- which lost $61 million, or 19 cents a share, in the second quarter -- is a long way from breaking even and needs to focus on turning around falling sales rather than cutting expenses, Wolf said.

"They have to generate revenue if they ever have a hope of breaking into profitability. It doesn't matter what they sell," said Wolf, who rates the stock a hold and personally owns about 5,000 shares.

Gateway has the real estate available, and the stores were light on product selection, he said. Stores are expensive to maintain, but Wolf considers them essential to Gateway.

Like Apple Computer Inc., the only other computer maker with its own stores, Gateway can attract customers by providing service that's superior to other retail outlets and allowing customers to try out products, Wolf said. (Wolf also owns about 12,000 shares of Apple, which he rates a buy.)

Digital electronics in general sell at a higher margin than personal computers, Wolf said. And stocking up on those products could boost sales of Gateway's how-to courses, which pull in even higher margins, he said.

Gateway is scheduled to report third-quarter results Thursday. The consensus estimate of analysts surveyed by Thomson First Call is a loss of 15 cents a share.

The company posted a worse-than-expected loss for the second quarter, with sales down 33% to $1 billion.

Gateway ranked fourth in U.S. market share for PC shipments, with 6.1%, in the second quarter, according to Gartner Dataquest.